The Borjas Blog

Immigrants Or Robots

I've long been interested in the Japanese reaction to the "shortage" of low-skill workers. Unlike the United States, they've chosen not to import such immigrants. Instead, they decided to build robots:

Robots could fill the jobs of 3.5 million people in graying Japan by 2025, a thinktank says, helping to avert worker shortages as the country's population shrinks.

Japan faces a 16 percent slide in the size of its workforce by 2030 while the number of elderly will mushroom, the government estimates, raising worries about who will do the work in a country unused to, and unwilling to contemplate, large-scale immigration.

The thinktank, the Machine Industry Memorial Foundation, says robots could help fill the gaps, ranging from microsized capsules that detect lesions to high-tech vacuum cleaners.

Which path is most beneficial for the pre-existing population of the country? Importing low-skill immigrants? Or building robots? And is the difference in the economic benefits between the two alternative policies big enough that one should pay more careful attention to this choice?

Income Effects

I'll have to add this classic to the discussion of the factors that determine the choice between labor and leisure in my labor economics textbook:

David Sneath has worked at a Ford Motor Co. parts warehouse for 34 years, but it didn't take him any time at all to walk out once he discovered he had won a $136 million Mega Millions jackpot.

"I yelled to the boss, 'I'm out of here,'" Sneath said Thursday after going to state lottery headquarters in downtown Lansing to pick up his first $1 million check.

The Lords Have Spoken

A committee of the House of Lords in Great Britain has been examining the economic impact of immigration for a few months. The Lords have spoken and the words sound familiar:

Whenever a minister is asked about high levels of immigration, the same answer is trotted out: migrants boost the economy, fill jobs that Britons cannot or will not do, and pay taxes that benefit the exchequer...

Yet an inquiry by a House of Lords committee into the economic impact of immigration - which I chaired, and reports today - found fundamental flaws in these claims. We found no evidence that net immigration (immigration minus emigration) generates significant economic benefits for the existing UK population.

The government told the inquiry that migrants contributed £6bn to Britain's GDP in 2006. Sounds great, but it's completely meaningless...the key measure of a country's standard of living is GDP per head, not total GDP. In percentage terms, immigration has increased Britain's population almost in step with the impact on GDP. So the effect on GDP per head has been roughly zero.

...Surely immigration is needed for jobs Britons refuse to do, the government argues. But they refuse to do these jobs only at current pay rates. In many cases, higher wages - never popular with employers - could solve the "shortage". In other cases increased mechanisation could bypass the need for migrant labour. Many employers today rely on the skills and hard work of migrants. But in the longer run, when wages can be increased and production methods changed, there is no valid argument for continued high net immigration.

Related to this is the effect on wages. While immigration was found to deliver a small gain in the wages of the highly paid, it has a slightly negative effect on the wages of the lowest paid, as many migrants compete for relatively low-skilled jobs. Any negative effect for people earning little more than the minimum wage must be taken seriously.

Let's see: (1) the net benefits from immigration to the pre-existing population are trivially small and (2) immigration redistributes wealth, and low-skill workers end up on the losing end. Where have I heard all this before?

(Here is a pdf of the report).

Playing Bridge While The Ship Sinks

A classic example of the principal-agent problem:

Last year, when he was still chief executive of Bear Stearns Cos., James Cayne took heat for hitting the bridge circuit during troubled times for his firm...Thursday and today, as Bear fought off a pending cash crisis that threatened to ruin its business, Mr. Cayne – who relinquished his CEO title in January and become the firm’s non-executive chairman – has been in Detroit, playing in the North American Bridge Championship.

...The playing took place between about 1 p.m. and 5 p.m. in the afternoon and 7:30 to 11 p.m. in the evening, say insiders – a period in which Bear CEO Alan Schwartz convened a series of conference calls with directors, according to people familiar with the matter, to discuss a pending cash pledge from J.P. Morgan Chase & Co. and the Federal Reserve Board. Still, Mr. Cayne participated in at least some of the dialogue, said one of these people.

The 74-year-old Mr. Cayne, who did not respond to a request for comment left at his New York office, has been back in the game today, says an attendee, amid the formal announcement of Bear’s liquidity infusion and its stock’s 47% plummet. No word yet on his performance.

Eliot Spitzer Is Unemployed

Michael Ramirez summarizes the situation. What can one possibly add?

Immigrant-Native Complementarity Revisited

I’ve often been asked what I think about the Ottaviano-Peri finding that there are strong complementarities between comparably skilled immigrants and natives—complementarities that lead them to conclude that immigration raises wages for many natives.

I’ve always been a little skeptical of the Ottaviano-Peri evidence. A couple of years ago, Jeff Grogger, Gordon Hanson, and I worked on a paper that examined the link between immigration and African-American economic status. As a by-product of that work, we explicitly attempted to replicate the Ottaviano-Peri finding--but couldn’t. Since then, we’ve been quite interested in trying to see what explains the discrepancy between our evidence and theirs.

Well, we have finally figured it out. Here’s the abstract to our new paper:

In a recent paper, Ottaviano and Peri (2007a) report evidence that immigrant and native workers are not perfect substitutes within narrowly defined skill groups. The resulting complementarities have important policy implications because immigration may then raise the wage of many native-born workers. We examine the Ottaviano-Peri empirical exercise and show that their finding of imperfect substitution is fragile and depends on the way the sample of working persons is constructed. There is a great deal of heterogeneity in labor market attachment among workers and the finding of imperfect substitution disappears once the analysis adjusts for such heterogeneity. As an example, the finding of immigrant-native complementarity evaporates simply by removing high school students from the data (under the Ottaviano and Peri classification, currently enrolled high school juniors and seniors are included among high school dropouts, which substantially increases the counts of young low-skilled workers ). More generally, we cannot reject the hypothesis that comparably skilled immigrant and native workers are perfect substitutes once the empirical exercise uses standard methods to carefully construct the variables representing factor prices and factor supplies.

English translation: The Ottaviano and Peri data includes currently enrolled high school juniors and seniors. They classify these high school juniors and seniors as part of the "high school dropout" workforce. Their finding of immigrant-native complementarity disappears if the analysis excludes these high school juniors and seniors.

Things that seem too good to be true usually aren’t.

(For the econometric geek who wants to play around with the data and see for himself/herself what is going on: We've created a STATA program archive that allows easy replication of all of the results in our paper. It is available here).

What's The Matter With Parents Today?

What can one add to this story?

The Georgetown psychologist fell into the role of toilet-training coach. She mastered potty training while working with children in an early-intervention program in the District in the late 1990s. About five years ago, she shared her techniques with a few groups of mothers. Word of Zimmitti's skills soon lit up local Internet discussion groups.

Now eager parents line up to pay her $250 for a consultation, with topics like quelling a toilet rebellion and pointers on how to avoid one.

"Sometimes a parent will say, 'How about I pay you $5,000 and you potty train for me?' " Zimmitti said. "They're halfway joking." 

It's hard to resist some smirky editorializing about those parents who are willing to pay to have someone else potty-train their child. But it's actually kind of sad. They just don't get it--there are some things that money can't buy.

Let A Thousand Flowers Bloom

For several decades, the federal government more or less looked the other way as the illegal immigration problem worsened--particularly during the Bush II years when the trend rapidly accelerated. Not surprisingly, somebody has to step into the vacuum:

State lawmakers around the country are proposing hundreds of bills this year aimed at curbing illegal immigration, but experts say the cost and public opposition will keep many from becoming law.

Lawmakers in at least eight states are now sponsoring legislation similar to Oklahoma, which last May passed the nation's most comprehensive anti-immigration law.

It restricts illegal immigrants' access to driver's licenses and other IDs, limits public benefits, penalizes employers who hire them and boosts ties between local police and federal immigration authorities.

The bills are among more than 350 immigration-related proposals unveiled in state legislatures in the first two months of this year, according to a count by The Associated Press.

If nothing else, this is a collective jobs bill for academic economists. Just think of the many papers waiting to be written comparing the impact of the various provisions across states. I shudder to think how many times I will have to hear the words "natural experiment" in academic seminars as newly minted Ph.D.'s use their newly created data to examine the impact of statutory restrictions on the setttlement of illegal immigrants in the state, on the settlement of legal immigrants, on wages, on capital flows, etc.

I Work At....

For reasons best understood by the layers of deans at my place of employment, I used to work at what was commonly known as the Kennedy School of Government (KSG). Now I work at the Harvard Kennedy School (HKS). And here is a terrific and mercifully brief history of the school's name. Funny--when I was commuting in today it didn't feel like I was starting a new job on what seems like the first day of spring in New England.

Now all that's left is to start spending the school's money getting new HKS stationery and business cards.

Reason #13,243,478 Why The Bush Administration Can't Be Trusted

They can't even build a 28-mile fence!

The Bush administration has scaled back plans to quickly build a "virtual fence" along the U.S.-Mexico border, delaying completion of the first phase of the project by at least three years and shifting away from a network of tower-mounted sensors and surveillance gear, federal officials said yesterday.

Technical problems discovered in a 28-mile pilot project south of Tucson prompted the change in plans, Department of Homeland Security officials and congressional auditors told a House subcommittee.

Did anybody outside the Bush administration actually think this would work? Even more interesting, did anybody in the Bush administration actually think this would work?